Brent set for first weekly drop of Iraq crisis as output spared

6/27/2014

Brent set for first weekly drop of Iraq crisis as output spared

GRANT SMITH

LONDON (Bloomberg) -- Brent headed for the first weekly drop since violence erupted in Iraq amid speculation that oil output would remain safe in OPEC’s second-biggest producer. West Texas Intermediate was steady in New York.

Futures were little changed in London and down 1.2% from June 20, the biggest weekly drop since April. Iraqi forces held the Baiji refinery in the north after repelling the latest attack by Islamist militants. Fighting hasn’t spread to the south, home to more than three-quarters of the nation’s oil production. U.S. crude stockpiles increased last week for the first time since May, according to the Energy Information Administration.

“Right now we are focusing hard on the situation in Iraq, although concern may have been a bit inflated,” Jens Pedersen, an analyst at Danske Bank A/S in Copenhagen, said by email. “The short-term risks to the oil market are limited.”

Brent for August settlement was at $113.37 a barrel on the London-based ICE Futures Europe exchange, up 16 cents, at 1:12 p.m. London time. The volume of all futures traded was about 48% below the 100-day average for the time of day. Prices have climbed 2.3% this year.

WTI for August delivery was little changed after earlier sliding as much as 36 cents to $105.48 a barrel in electronic trading on the New York Mercantile Exchange. Prices are down 1.3% this week. The U.S. benchmark crude was at a discount of $7.48 to Brent on ICE, compared with $7.98 on June 20.

Iraq Conflict

Brent has gained 3.6% in June as fighters from the Islamic State in Iraq and the Levant captured the northern city of Mosul and advanced south toward Baghdad. Iraq pumped 3.3 MMbopd last month, trailing only Saudi Arabia in the Organization of Petroleum Exporting Countries, data compiled by Bloomberg show. Iraq’s crude exports will accelerate next month, Oil Minister Abdul Kareem al-Luaibi said on June 25.

“Markets are beginning to position for the likelihood that insurgents will be contained from any further incursions to the south, allowing oil exports to be maintained,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said in a note.

WTI may rise next week because of the risk that fighting could still spread south, according to a Bloomberg survey. Thirteen of 33 analysts and traders, or 39%, estimated futures will gain through July 3, while eight respondents predict a drop.

In the U.S., crude inventories expanded by 1.74 MMbbl last week to 388.1 million, the EIA, the U.S. Energy Department’s statistical arm, reported on June 25. A 1.7 million decrease had been projected in a separate Bloomberg survey.